MGIC Investment, Radian Shares Plunge On Likely $1 Billion Write Down

Includes: MTG, RDN
by: Jonathan Liss

Shares of mortgage insurers MGIC Investment Corp. and Radian Group Inc. fell sharply in after-hours trading Monday on news they would likely have to write down most or even all of their $1.03 billion joint venture, Credit-Based Asset Servicing and Securitization LLC [C-BASS], which aims to buy mortgages with overdue payments and improve the collection rates before reselling the debts at a profit. The companies, which agreed to merge in February, saw their shares fall 2.26% [MGIC] and 3.18% [Radian] during regular trading yesterday, amid widespread market gains. Shares tanked after hours as news of the probable writedown broke at 6 p.m. ET. By the time trading came to a halt, MGIC's and Radian's shares were down 11.97% and 7.96% respectively. During the first quarter, MGIC saw its net income fall by 43%, on mortgage-based losses of $181.8 million (see full summary), while profits fell 49% in the recent-ended quarter. Radian, meanwhile, has seen its shares fall for 12 consecutive days, and 40% since announcing the merger with MGIC. Radian said sales of traditional mortgage insurance jumped 60% in Q2 to $10.64 billion, adding to investor concerns it will bear the brunt of further fallout in the U.S. housing market. The companies say the merger is moving forward as planned. MTG 31 07 2007 Chart RGN 31 07 2007 Chart

Sources: Press Release I, II, Bloomberg, Reuters, Philadelphia Inquirer
Commentary: MGIC's Q1 Earnings Miss, Losses Jump, but Delinquencies Slightly LowerRadian: MGIC Merger Looks PromisingMGIC Investment Corp. to Buy Radian for $4.9 Billion in Stock
Stocks/ETFs to watch: MTG, RDN. Competitors: PMI, GNW, TGIC, AGO, BCIS

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